Working Capital The Real Estate Podcast

Building a Real Estate Legacy, with Allied REIT’s Michael Emory|EP43

Mar 3, 2021

In This Episode

Michael Emory is a graduate of Queen’s University (BA, Hons., 1977) and the Faculty of Law, University of Toronto (JD, 1982). Prior to entering the real estate business in 1988, Michael was a partner with the law firm of Aird & Berlis, specializing in corporate and real estate finance.

Michael is the founder, a Trustee and the President & CEO of Allied, a leading owner, manager and developer of (i) distinctive urban workspace in Canada’s major cities and (ii) network-dense urban data centres in Toronto that form Canada’s hub for global connectivity. Allied’s business is providing knowledge-based organizations with distinctive urban environments for creativity and connectivity.

Allied went public in February of 2003 with assets of $120 million, a market capitalization of $62 million and a local urban-office portfolio of 820,000 square feet. Allied now has assets of $9 billion, a market capitalization of $5 billion and a national urban-office platform of 14 million square feet.

Michael is also a Director of Equitable Group Inc. and Equitable Bank.


In this episode, we talked about:



  • How Michael transitioned from law to real estate
  • Living through the real estate collapse in the 90s
  • How Michael approached his first capital raise
  • The recovery of office space after the COVID-19 pandemic.
  • What was difficult about Allied’s IPO.
  • The importance of Environmental, Social and Governance (ESG)

Relevant Links:




0 (1s):

Welcome to the working capital real estate podcast. My name is Jesse Fragale. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund, join me and let’s build that portfolio one square foot at a time. All right, ladies and gentlemen, welcome to working capital the real estate podcast I have as usual, a special guest today. His name is Michael Emery. Michael is the founder, a trustee and the president and CEO of allied properties. Real estate investment trusts, a leading owner manager and developer of a distinctive urban workspaces in Canada’s major cities and be network dense urban data centers in Toronto.

0 (44s):

That form Canada’s hub for global connectivity. Mike, how you doing today? Just great. Thank you. How are you? I’m doing fantastic. We were just kind of joking around that. We’ve got our first real snow fall, so I think everybody’s excited to get the skis and the snowbirds out.

1 (60s):

Yeah, I had to, I had to shovel my way out of the driveway to get down to the office, but it wasn’t too bad.

0 (1m 7s):

Awesome. Well, Michael, thanks so much for coming on the show. I think, you know, what we typically do with guests is take a step back and ask them, you know, what their first relationship with real estate was and kind of the origin story of that light bulb moment was that geared your, you know, your focus on real estate.

1 (1m 27s):

Okay. Well, in my case, it actually goes back to law school. I went to law school in 1979 at the UFT because my father had mentioned to me that he thought it was one of the more versatile forms of training a young person could get. And that resonated with me in a big way. And I loved the three years I spent at the U of T faculty of law. And I also concluded fairly quickly that I didn’t really want to practice law for the duration of my career. I thought it was a wonderful gateway, but I didn’t want to practice indefinitely.

1 (2m 12s):

I was very fortunate to join as a summer student, an articling student and associate, and ultimately a partner with, with the Erin Burliss law firm. And it was there that I got an opportunity to see what real estate was really like in the world. I was a securities lawyer, but we advise the number of issuers in the commercial real estate space. And I got a bit of a perspective on what it meant to engage in commercial real estate. Although I have to confess at best, I had a slight inkling and nothing more, but I was young enough that I decided I could do this well and I wanted to do it.

1 (3m 1s):

And it took me two or three years, but I finally found a way to launch a very small private enterprise. In 1988, it was called allied Canadian corporation. It was a name that sounded much more vast and much more important than the reality that’s for sure. But I was fortunate in one respect. I, in fact, I was fortunate in many respects, but I got to enjoy about 18 months of modest success because we were at the tail end of a real estate, boom, the boom of the 1980s. I mean, before you were probably even born, but as importantly, I got to live through the collapse, oops, that occurred in 1989 and 1990.

1 (3m 51s):

And basically the real estate market collapsed for five years. The real estate industry and in Canada collapsed almost in its entirety. All of the great names either collapsed completely or went through CC AA, some form of restructuring and slowly an industry emerged over the course of the first half of the 1990s. It was brutally difficult, but never did I get a better education about running real estate than I did in the first half of the 1990s, I also was fortunate to observe that two brick and beam buildings that we had bought in the late eighties held up really well through those bleak days.

1 (4m 41s):

And initially with the towers sustaining 25 to 30% vacancy with rents having gotten negative net, I couldn’t figure out why these funky little buildings in the St Lawrence market area of Toronto were holding up so well. But as we thought about it, we realized there were really three things that were giving us an advantage in that difficult environment. One, we were very close to the core that was helpful to the buildings had very distinctive internal and external attributes. That was hugely helpful because there were certain users that wanted to provide those attributes to attract, motivate, and retain their talent.

1 (5m 23s):

And then three at the overall occupancy costs, especially the fixed taxes and operating costs were very low relative to the towers about eight 50, a foot compared to 2250 to $25 a foot in the towers. So we could lease out at 20 all in and get to keep about 12 bucks. The towers were leasing out at about 20 all in, and we’re losing anywhere from two and a half to $5 per foot. They were net as it was called at the time. So we had this advantage in those difficult times, and that’s what guided us by the mid part of the nineties into the downtown West marketplace.

1 (6m 11s):

And the St. Lawrence market area have to adaptively, reuse older structures and to try to take advantage of that value proposition, proximity to the core distinctive internal and external attributes and lower overall occupancy costs than the conventional office towers. The last thing that did for us and I’ll stop is it gave us insight into what users really wanted from their space and what they wanted more than anything else was to create an environment that would be appealing to the talented men and women who were propelling their organizations.

1 (6m 52s):

That was the focus cost was certainly relevant. Location was certainly relevant, but most of all, they wanted an environment that would attract, motivate and retain these very talented, very mobile, very much in demand human beings that they needed to propel their business forward. And the last thing that this did, we didn’t realize it fully at the time, but we ended up owning a huge amount of underutilized land. We had land that supported a four story building that was generating a very high return, but the zoning would permit 20 stories so that if you will, Delta of 16 stories, if we could create it, we could create it without additional land costs.

1 (7m 43s):

And that of course was really valuable. So by that point in time, we were public and that’s how allied private entity evolved into allied the public entity and access to public capital gave us the ability to consolidate these assets and ultimately to intensify them. So it, it wasn’t as smooth and as logical as I recount the story, but that essentially is the story of allied properties REIT and the allied business. And it took place over roughly 30 year period.

1 (8m 23s):

So it was not, there was no overnight sensation here. There was no overnight success. It was a long deliberate, but I think generally very interesting journey

0 (8m 38s):

Right on, well, it’s like that success line for me to be with all the scribbling in between. And it’s, it’s that meandering path, Michael, I want to definitely get to the, what, you know, through the nineties. And I think the IPO was in 2003 and what that was like, that must have been crazy. But before we do, you know, we, these, you know, us and Canadian business leaders, and I’m always curious, going back to the original capital raising and how they built, especially in real estate, how they built the enterprise. So if you take us back to 1988, what was that environment like for raising capital? And my, my guess is it had to be kind of your circle of trust at that point. Maybe your friends and family and for the seed.

0 (9m 19s):

And w what was that experience like?

1 (9m 21s):

That’s exactly right. It was friends and family quite literally. Now it was possible then to get enormous amounts of debt capital in relation to the value of the assets, just enormous. In fact, it was not uncommon for people to commit, to buy a building and to arrange a mortgage in excess of the purchase price, place it on the building, and actually profit on the date of closing on a tax-free basis with mortgage proceeds in excess of the purchase price. That was not uncommon.

1 (10m 2s):

It was crazy, but it was not unheard of. Fortunately, I wasn’t smart enough to attract that level of debt financing, and maybe I was prudent enough to see the risk associated with it. It was probably a combination of good luck and good management, but it was very much friends and family at the beginning. Then by the mid nineties, it evolved a bit, we were credible in the early stages at best. We were inspired amateurs by the mid nineties, we were credible real estate professionals. We knew how to run real estate. We knew what made it work, and we knew what didn’t make it work.

1 (10m 44s):

And we were then able to attract what I might call capital from fund managers, not quite private equity, but really large fund managers who wanted to have their clientele invested in real estate, because it didn’t correlate with the equity markets. So they wanted non-correlated investments because the equity markets didn’t always do well, and this might give their clientele a better overall outcome in changing environments. And we were able to attract quite a significant amount of capital then, and that was the first wave of real progress on the part of the private entity.

1 (11m 29s):

It then acquired the Sable portfolio in 19, I believe 99 or 98, and that was a million square foot portfolio, 18 buildings. And basically we systematically adaptively reuse those buildings, and then we bring it to 2003. Then we realized that we were onto something. And if we wanted to consolidate and adaptively reuse on a scale, that was truly large, we needed public capital. So the, the private capital in a way then did into the public entity.

1 (12m 12s):

And then we carried on and became a serial issuer of equity. And then by 2014, we had a credit rating. So we began to establish a debt capital markets or bond franchise, and we’ve since become a fairly consistent and successful issuer of, of that kind of capital as well. So that’s kind of the capital spectrum. And it’s interesting today. I keep asking myself as a matter of interest, could I do today? What I did in 1988 and beyond, and it would be a lot harder. The barriers to entry are much higher. Now that doesn’t mean there aren’t, you know, imaginative, creative, young people who will, who will find a way.

1 (12m 60s):

And given the proliferation of private equity, getting capital today might be easier than it was in my day. But, but getting access to opportunity is probably harder because real estate has consolidated in very, very strong hands. And it’s really hard and really expensive to buy in now.

0 (13m 25s):

Yeah, I think it was you. I was listening to on a panel a few years ago, and it was this idea of the negative correlation between capital being out there and the ability to find deals. And, you know, capital’s out there it’s everywhere and then you can’t find deals, but when you can find deals everywhere, it seems that there’s not a lot of capital. I want to talk a little bit before I move into the IPO and get your take on what that experience was like. You know, we’ve heard the term, I don’t know if it was Sam Zell that coined it, the stay alive till 95, you know, for every commercial real estate professional that has had been around that at that time, they talked about just getting, you know, getting through that time. And you mentioned in the first 15 months, you had a lot of success.

0 (14m 8s):

Talk about a little a bit after that. And w what were the challenges and how did, how did allied and yourself, how did you make it through those those times? And they’re really nineties. And, you know, it wasn’t like you were saying you were talking about before are a function of the fact that you had these very unique assets that seem to be able to potentially weather the storm a little better.

1 (14m 28s):

No, you know what, not really, although that was very helpful to us as we evolve, but I think what got us through the first half of the nineties is we had, we created what was a small transaction-based businesses business, pardon me? We buy and syndicate assets and manage them going forward. That business literally ceased to exist in about March of 1990. So the way we survived was by transforming ourselves from a transaction-based business, essentially into a service business. The one growth area in the first half of the 1990s was real estate trouble.

1 (15m 13s):

So in fact, what we evolved into was a firm of troubleshooters. We help lenders, we help syndicates. We helped individual owners grapple with the challenges they were facing in relation to their real estate. And we actually became good at it. And to the point where banks would even have us installed, because we were able to help the owners understand what their prospects were. And there were really three prospects back then you are either dead on your feet.

1 (15m 53s):

And you had to find a way if you will, to die with the smallest negative financial impact possible, that was, that was easy actually. And there were some cases which were clear turnaround situations with a little bit of capital and a little bit of resolve. This was a great piece of real estate. And as long as we could survive to 95, we would live to fight another day and preserve our asset. The really difficult issues where the people in the middle, they weren’t necessarily dead on their feet, but it was not altogether clear that they could survive.

1 (16m 33s):

And so we, we survived by becoming an advisor essentially.

2 (16m 40s):

And, and we did reasonably well,

1 (16m 42s):

Well, financially, we didn’t make a lot of money, but we, we paid everybody. We honored all our obligations, and we were able to generate modest salaries for ourselves and, and sort of stay alive. But the most valuable part of that five-year period, wasn’t really the money we generated. It was the knowledge we accumulated and the information we corralled through that exercise that had a huge, positive deferred return for us. So the current return on our efforts, but the future return or deferred return as it turns out was really quite significant.

1 (17m 25s):

So I look

2 (17m 26s):

Upon that five-year period,

1 (17m 28s):

As the most formative five years in my entire career, it was the hardest, it was the most disheartening. It required the greatest amount of positive thinking and positive energy and determination, but it was also the most productive in terms of really understanding real estate. Real estate is a business. It is that anyone that says real estate is an investment is, is profoundly wrong, is a business. And it has to be understood as a business. And that’s when we learned that fact that that real estate is a business. There are real life human beings who are relying on you to perform certain functions and provide certain spaces.

1 (18m 17s):

And if you don’t do it, you’re going to fail. Yeah.

0 (18m 19s):

Yeah. And you know what, it’s funny that you just mentioned your Alma mater you university of Toronto, there was a great white paper. I’ll put it in the show notes for listeners and especially titled the commercial real estate crisis of the 1980s and nineties. So for, for the younger people like myself and even newer in the industry that want to just a slice of what happened and what the flavor of that time was. And we could talk about a bit of the similarities and differences to our current state right now. But I want to talk about what you’ve said. I’ve heard you say in the past was if not the most, probably one of the most difficult times in your, or most challenging times in your professional life, the, the IPO in 2003, you know, maybe you could talk a little bit about what that experience is like and how you, how you made it through.

1 (19m 7s):

Yeah. You know, it, it was brutally difficult in retrospect. And of course your mind has a way of smoothing out all the edges. But when I think deeply about it, it was extraordinarily difficult. And I have to acknowledge one thing before I start, we were the second wave in the second wave of public real estate entities, the pioneers Rio Cannes and sunshine Crete, Steven Johnson, summit, Lou maroon, H and R Tom Hoff. Sec, those guys were the pioneers. They went first and Tom Schwartz, I should never forget.

1 (19m 47s):

Tom was one of the great pioneers as well. They went first, they took the slings and arrows. So by the time we came along, there wasn’t as big an education process to go through with the equity capital markets. What made it so difficult for allied was two things. Number one, we were quirky and that’s probably a polite way to, nobody had heard of class I office space. People wondered why you would invest in 100 year old buildings when there are actually new buildings that you can invest in.

1 (20m 35s):

So we were quirky. We were acquired a bit of comprehension. There was a story that needed to be told. And I think we did a pretty good job of telling it ultimately, and there were some key institutional, thankfully, and I have to acknowledge century select Sandy MacIntyre, CEI, Ben Chung, and a group in, in Vancouver called Cyprus who saw what we were doing. They got it. And they, they took a position and that ultimately allowed our IPO to complete successfully. And they knew the, they knew.

1 (21m 15s):

And this was the second problem we had. We were ludicrously small. We basically raised $62 million and had assets of about 120 million. And in the context, even of the Canadian capital markets, that was laughably small in the context of the U Capitol Oh markets, it was unthinkably insignificant. But once we got done, here’s the good news. And the investment bankers kept saying this to me. And I, I didn’t believe them at the time. They said, listen, if you get through this and you can deliver what you’re representing to the unit holders, you can deliver, you’ll be shocked at how much capital you’ll be able to raise and how easy it will be for you to raise it.

1 (22m 10s):

They were right. And here’s what made a brutal, really difficult process. Ultimately very succinct the story or the strategy was very sound concise, solid operating assets that had those three attributes around Toronto’s core, close to the core distinctive, lower overall life that really worked the demand for that went up and up and up and ability to satisfy that demand got better and better and better as we consolidated more and more. So the story actually resonated because it, it was in sync with how the market was evolving.

1 (22m 56s):

And even Americans came up at their initiative to meet with us because they understood the story. Hmm. They knew we were ludicrously small. And they, what that meant to them really is they were making essentially an illiquid investment if they bought $40 million of allied stock, which you couldn’t even do it at the beginning, but as we got a little bigger, it wasn’t liquid. So they had to bet on us in a, in a big way, as I say, the story resonated, the consolidations really accelerated right out of the gate. And we just, we to our focus, we never tried to be something else, even though all kinds of other opportunities, they came to us, we stuck to consolidating the types of assets we saw as having a unique opportunity in the market.

1 (23m 51s):

We then took that to Montreal and did the same thing and then to Calgary and then to Vancouver. So the strategy slash story was sound, and we stuck to it and we held ourselves accountable to it. And so it, you know, and there are so many that we came so close to failing on the IPO. So many times I keep wondering, you know, if we had given up, or if we had just hit the wall, a pretty material, public, real estate story would never have happened. Maybe someone else would have come along and done it, but probably not.

1 (24m 34s):

And, and I’m so glad we persevered. I’m so glad the investment bankers stuck with us. I’m so glad our board and, and it, it, there was a very happy outcome to the, to the story, but it, it was, it was, excrutiatingly difficult. It’s easier now to execute an IPO. And again, that’s, that’s just progression in the market, but scale is important and it’s important because the market needs liquidity. And the way you have liquidity is if you have a large number of units in the public capital markets that can trade every day. And of course, we now very much have that in our, you know, by American standards, we’re still maybe small to medium cap, maybe more medium cap, but by Canadian standards, we’re, we’re definitely a large cap.

1 (25m 28s):


0 (25m 29s):

So was it the challenge with the IPO I’ve always wanted to ask this, was it in terms of, you mentioned the nature of the asset, you know, brick and beam was at that time, maybe that was one of the, one of the challenges, but was another, was another challenge of it. Was it the valuation of the assets? Was it, you know, what, what cap rates do you do use for what market, because that, that type of valuation would have already been done with the IPOs that you had mentioned. So was it just primarily the nature of the assets?

1 (25m 57s):

It really was because the valuation was addressed in the yield. We went public to yield either 10.2% or 11.2%. I mean, it was horrific. Fortunately we’d created a lot of value. So the value creators were able to get a good return, but we went public. I pretty sure it was 11.2%. Wow. So that addressed the valuation issue. Nobody had any problems there. The market basically extracted that very, very, if you will generous valuation from the market’s perspective from us.

1 (26m 38s):

And that’s what we had to do to clear the market. So we addressed the valuation issue that way. And I think it was ultimately the asset class. And again, in fairness, the IPO did get done and we were ultimately successful in articulating the strategy and telling the story and people believed in the story. Yeah, that’s based on that belief, but the biggest, the biggest challenge was getting people to, to, to see this as a potential asset class, not just sort of a goofy little niche that may or may not prove to be part of a trend, you know, one thought was, well, this is just a fad.

1 (27m 24s):

This is a cute little fad it’ll pass. And what happens then another thought was, well, this is kind of nice, like what you guys are doing, but how can you turn this into a big business? This is a nice little niche, but can you, can you give this scale? And either we had to recognize, then I couldn’t stand up it, I would never have stood up and said, we’ll, you know, we’ll be a REIT with a five to $7 billion capitalization, you know, a decade and a half down the road, which works. But I mean, I would never have imagined that. I remember telling one of the institutional investors that maybe we could grow off the base off the little base at the rate of 25% a year or so.

1 (28m 11s):

And he said, if you can do that, you’ve really. And then I thought, Oh shit, what have I promise? But we actually grew the, the asset base, if I remember correctly at around 35% per year and compounds pretty fast. And we were, we were successful in doing that. And I, I think we’ve been successful in doing that through the 18 or 19 years, but it was, it was the nature of the assets and whether that could be anything other than a nifty little niche business. And, and I think one of the things I’m, I think the team at allied can take some pride in is we, we demonstrated unequivocally that this was the foundation for a very large business.

1 (28m 58s):

And, and we are one of the largest owner operators in Montreal in Calgary, and we’re getting to be, but we’re not yet there in the city of Vancouver. So, so I think it really was the nature of the assets and whether it could be anything other than kind of a cute little business. And, and that was a fair question actually. And some people thought, you know, maybe, maybe this strategy and maybe this team has the ability to grow. I think we, we grew more than anyone, even our most optimistic supporter would have expected.

1 (29m 42s):

We certainly grew more than we would have expected.

0 (29m 45s):

Yeah, yeah. That that’s incredible. And kind of were you’ve come from there too. And just dealing with you with our company in, in the, well, the development in Toronto, Toronto downtown in the West, it’s just, it’s the scale is it’s pretty incredible. I wanted to fast forward a little bit to today. It’s hard to talk about real estate without talking about COVID in some capacity and you know, the thing I always tell clients, it’s, it’s, you know, it’s almost rote at this point, you know, you’re talking about multi-family doing well, industrial kicking along retail, the story’s fairly often obvious. And then it comes to office and office is kind of this, this kind of odd environment, because there are certain industries that are doing very well.

0 (30m 26s):

Some that have been hurt tremendously. I’d like to talk about just your thoughts on, on office and COVID and how that has impacted potentially the way we work for, you know, a prolonged period of time.

1 (30m 40s):

Well, it’s, it is a very interesting question, as you can imagine, or as you know, and it’s a question about which there is quite a strong divergence of opinion, even today, as you, here’s my view. I think in trying to anticipate what’s going to happen as we come out of this pandemic. And I think we all agree today that we will come out of it. And that probably that is maybe not imminent, but it’s very much within the foreseeable future. I think that’s widely accepted.

1 (31m 21s):

So the conclusion I’ve come to, and it’s a very important subject for allied. Obviously the conclusion I’ve come to is we’ve got to focus on how people behave, not on what people say. Speculation is fun. Talk is cheap. Michael Emery is certainly going to suggest that the future of office space is bright. It’s something he’s paid to do. And he’s got a huge vested interest in, and some other dude who has a wholly different perspective on the world might contemplate the entire organization, working from home full-time in both instances, the talk is cheap.

1 (32m 21s):

What Michael Emory does is relevant. What the other dude, whoever he or she might be does is relevant. So what we’ve been trying to do since we reopened on the 6th of July, 2020 is evaluate what our users are doing, whether they’re renewing their space, whether they’re leasing new space, whether we’re able to get the rents from them that we expected to get under the circumstances, whether they’re telling us that they plan to return with their entire workforce, to the office, et cetera, et cetera, et cetera.

1 (33m 5s):

Here’s what we’ve learned to date. I would not characterize it as definitive. The debate is not over, but here’s what we’ve learned. We learned that in terms of renewals in 2020, we achieved everything we expected. We would pre pandemic. We renewed 80% of the space that came due in the year. Our high lever, our high water Mark is 85. Our low threshold is 75. So it was right at the midpoint. We achieved an average annual increase in our rental rates of 17.3% for that space.

1 (33m 51s):

And there were some drags in the city of Calgary, but on a, on a net basis overall, we achieved an average increase of 17.3% that compares to 18% in 2019. So essentially the same that doesn’t tell a whole story, but it’s indicative then look at new leasing. This is an amazing statistic and it is 100% accurate. Allied did 258 lease transactions in 2020. And your firm was involved in a number of them, 103 of those transactions involved new tenants to the portfolio.

1 (34m 38s):

So think about that. Yeah. I don’t know in terms of area, what those one Oh three represented relative to the two 58 I should, but I don’t, but 103 new tenants in 2020, again, that’s suggestive last but not least. We have been in constant communication with our users across the country, and they’re indicating to us that they plan to bring their workforce back to the office. A because there are people want to be back and the, because they want their people back, but they’re only prepared to do it, quote unquote, when the pandemic is over.

1 (35m 21s):

Yeah. And so that, you know, when we were hearing this probably in the third quarter of 2020, and even then we didn’t know a new, when the pandemic was going to be over and what over was going to look like the advent of the vaccine, however difficult the distribution has been subsequently had a big impact on, on that. So all the indications we’re getting so far, all the behavior that we can observe, forget the talk, all behavior that we can observe suggests to us that the underlying strength of the markets we’re in most notably, Montreal and Toronto, although we’re very much active in, in Calgary and Vancouver as well, but not on the same scale that our users plan to return and that the future of office space won’t materially be altered by the pandemic.

1 (36m 21s):

Now, again, I don’t assert this categorically because I don’t have enough data to, to, to support this assertion. But that’s what I sense. That’s, what’s indicative from what we’ve learned. We’ve even recently concluded a transaction at the well, which your colleagues would have been on the listing side of, with a law firm for 30,000 feet. And it’s immensely significant for three reasons for allied. Number one, here was a knowledge based organization that came to the conclusion that they had to operate from collaborative collective workspace period, full stop.

1 (37m 2s):

They did not have a choice in their view. Number one, number two, they had a pending renewal two years out and they wanted an environment that would help them attract the most talented practitioners they could attract. And they concluded that the well it’s a beautiful floor there or two there on would help in that regard because of the amenity rich environment. And then finally for us, what was significant is it was the first time a law firm has made a large scale long-term commitment to our space anywhere in the country.

1 (37m 43s):

And what we’re seeing is professional services firms are beginning to migrate to the kind of space we provide for the same reasons that the knowledge-based organization or the more tech oriented businesses have, have migrated there in the past. They want the amenity rich neighborhoods. They’re very sensitive to wellness. They’re very sensitive to sustainability. So if I had to guess from all of this, and it would only be a guess at this juncture, I think what the pandemic will do to urban workspace is increase the emphasis that was already evident pre pandemic on wellness, on sustainability and on amenity richness, either within the building or within the neighborhoods surrounding the building.

1 (38m 41s):

Those trends were glaringly evident, pre pandemic. I think they will be even more pronounced post pandemic. I also, I think the one area that will be most profoundly impacted post pandemic will be air handling. It is it’s, it’s, it’s been evolving meaningfully over the last decade and a half. As you know, some people are advocates of the under-floor air system. Allied is, is definitely one of those advocates. And it has worked very well for us. And we believe it represents a superior form of air handling generally.

1 (39m 28s):

And certainly if, if we’re talking about minimizing the impact of pathogens, Erath aerosol pathogens in the air. So I think, I think that’s where a lot of brainpower will be dedicated and, and those systems will be improved, but they have been improving for decades now because they have huge impact on how people feel when they’re in the space and alert they are. And how, how, well, actually, if you’re breathing recirculated air, if you’re breathing air, that’s got a good refresh rate and is properly filtered much better for you as a human being.

1 (40m 14s):

So that’s where I see it going, but I, I can’t, you know, I don’t want to say mission accomplished now, I’ll tell you one more thing I’ve been saying to our investors. I’m very interested in what the Canadian chartered banks are going to do because that’s maybe the one big unknown and in Toronto, especially they’re incredibly influential. I think the announcement of Scotia’s renewal at Scotia bank, or pardon me at Scotia Plaza is hugely significant because what it signals is the commitment today.

1 (40m 57s):

Long-term to, I think, around 120,000 square feet of additional space going forward on the part of Scotia bank. And they were definitely going to give back some of the space at Scotia Plaza because they committed to Brookfield’s Bay, Adelaide North to some extent. So that was inevitable pre pandemic, but what, what the owners King said in Aimco, I believe what they achieved is a very strong, concrete indication that the banks aren’t going anywhere. And if anything, they’re going to increase their print. Now, again, I don’t want to conclude that because it’s only one of the six major banks, but I, but I, I think that’s a very strong signal.

1 (41m 45s):

And as I say, that’s the one area of visibility that’s been less than ideal for us. What are the banks do if the banks decided to put millions of square feet of space onto the sublease market in Toronto, that would hurt all of us. Yeah. That would set us back years. Clearly. I don’t believe that’s going to happen. And certainly Scotia’s decision is evidence of it not happening with Scotiabank. And I don’t, again, I don’t run the banks. I don’t have any influence over the banks, but I don’t see them abandoning space in any meaningful way in downtown Toronto.

1 (42m 26s):

I really don’t.

0 (42m 26s):

Yeah, for sure. I mean, it’s been, it’s been really fascinating to see the sublease market. It, you know, in addition kind of where it was two years ago, a year and a half ago to today, we don’t, we don’t have too much time left here. I want to be just conscious of, of your time, Michael, but maybe what we could end with is you, you had a ESG report, environmental social governance report. I thought we could end it there and talk a little bit about that report and the impact of ESG when it comes to not only your company, but real estate companies in general today.

1 (42m 58s):

Yeah. You know, I think the ESG evolution has been accelerated by the pandemic. Again, it was very pronounced pre pandemic. And in fact, we committed sometime in 2018, I believe to our unit holders that we would by 2020, submit to a GRE ESB assessment and provide our inaugural ESG report. And that was actually an enormous amount of work I did when I made the commitment. I didn’t make it glibly, but I didn’t fully appreciate how much work on the part of a broad cross section of the team would be required to actually do these things well, but we learned, and we did them and, and we, we fared well for a first time submitter under the grasp assessment.

1 (43m 59s):

Although there’s lots of room for improvement at allied, but we now have a rational framework within which to evaluate ourselves where we’re strong, where we’re weak, where we’re somewhere in between. And we have a rational basis to measure and to establish priority and measure improvement going forward. I’m thrilled about that. The board is fully supportive of that. ESG is not a fad. Any more than class I buildings were a fad back in the early part of the last century. ESG is not a fad. It is real. And what makes it real ultimately is the money and the people who invest huge sums of money globally in real estate are basically saying, we have noticed that companies who are attentive to ESG tend to perform better than companies who are not so purely as investors, we’re going to be more disposed to invest money in a company that has successfully yes, G practices or a commitment to ESG.

1 (45m 15s):

We’re going to be more likely to invest in that company. Then one, all else being equal that doesn’t, so money talks follow the money kind of thing. And I believe as well, in addition to that enlightened self-interest, I believe it is indeed our duty as a major real estate owner operator and developer in this country, sorry to minimize our impact on the environment to create investment that are conducive to human wellness for the tens of thousands of people who use our buildings every day, right across the country.

1 (45m 57s):

And finally, we are part of a broader community and we have to be sensitive to the impact of what we build and what we operate on the larger community. And if we can do those things, we will be more successful. We will attract more tenants. We will retain pain tenants with a greater degree of certainty. And we will have the support of the community, which in turn will. And we have a wonderful experience to draw on. In this regard, we bought a million square feet in Montreal, six, seven years ago, big industrial buildings.

1 (46m 39s):

And we wanted to adaptively reuse them for the kind of organizations we serve. There were a huge number of artists in those buildings. They were petrified that we were going to displace them. And what happens to artists is they keep going from great urban environment to, you know, savages like me come along and discipline. Now we were sensitive to that and long story short, what we did was right. We agreed to provide 200,000 square feet to an artist collective for twenty-five years at a reduced level of rent. That was partially justified by the fact that we didn’t have to put the money money into the space, the artists, yeah.

1 (47m 23s):

So net effective, it wasn’t as big as it was still lower net effective than we would get. But here’s the amazing, the fact that we did that helped us attract the high rent paying tenants that came into the remaining 800,000 square. They came in because they knew we did this because they knew they would never be accused of displacing the artistic community. So what I said to, to the province when we were part of a presentation on this was enlightened self-interest yes, it was the right thing to do. And I hope some element of that influenced our decision-making, but it was in our economic interest as well.

1 (48m 4s):

And the fact that when, when your economic interest aligns with ESG, then, you know, ESG progress has gotta be made. If there’s no alignment that progress isn’t gonna be alignment is getting better and better and better and more meaningful as a result, ESG progress will be made in the world. Yeah. Will it be perfect? Certainly not. But ESG progress will be made, not just because it’s needed and it’s the right thing for us to do with future generations in mind, but because it’s in our interest to do it, and that’s a great environment to be working in.

1 (48m 45s):

That’s why I actually love ESG because it’s kind of an aligned environment where the money is aligned with the issuers who are internally aligned with the communities of human beings that we have impact on. So I think it’s a terrific thing and we have a long way to go as allied to get to where we want to be, but we’re, we’ve started the journey and we’ve got a rational basis for establishing priorities and we’ve got a rational basis for measuring progress

0 (49m 19s):

Right on. Well, another one for the books. My guest today has been Michael Emery. Michael, thank you for being a part of working capital. My pleasure favor, listening to the working capital podcast. My goal is to help individuals break into real estate investing as well as educate experienced investors. If you enjoyed the show, please share with a friend subscribe and give us a rating on iTunes. It really helps us. If you have any questions, want to learn more or likely to cover a specific topic on the show, please reach out to me via My name is Jessica galley, and I’ll see you back here for the next episode of the working capital real estate podcast.

0 (50m 5s):

Hey everybody, this is Jesse Fragale. Before we start this episode, I just want to say thank you so much for everybody that keeps on listening, it really is amazing to me and I can’t. Thank you enough. What would really help us out is if you enjoy the show to go over to iTunes and leave us a five star review. Also, if you have a favorite episode, what would be great is if you could share it on social media, whether that’s Facebook, Instagram, or LinkedIn, anyways, enjoy the show.